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India may go for stricter Crypto regulation rather than an outright ban

calendar 22/11/2021 - 13:19 UTC

In India, there are immense uncertainties over Crypto trading as Government/Parliamentary Standing Committee (PSC) and Central Bank (RBI) are divided over Crypto regulation and an outright ban. RBI Governor Das is for an outright ban considering potential money laundering, frauds and various criminal activities through the Crypto route. Das had recently stated that the RBI had major concerns around cryptocurrencies, which, over time, have been conveyed to the government.

RBI Governor Das said: "I would like to reiterate that the number of accounts is exaggerated in the sense that about 70%-80% of accounts being cited are small accounts of Rs 1,000-2,000 and even Rs 500. So, anecdotally, and we have a lot of feedback, that while credit and incentives are being provided for account opening, the amount in these ranges between Rs 500-2,000-- the value of trading in cryptocurrencies had gone up but when the central bank says we have serious concerns from the macro-economic and financial stability point of view, then there are serious issues involved--I have yet to see serious, well-informed discussions in public space. At this time, the RBI, as a central bank, which is entrusted with the task of maintaining financial stability, after due internal discussion, says there are serious concerns, then there are deeper issues needing much deeper discussions”.

The PSC is for stricter regulation instead of an outright ban because of the appeal of innovation and the fact that millions of Indians are already trading/holding such Cryptos like Bitcoin (BTCUSD). The Indian PM Modi also called for a common regulation for Cryptos among Democracies, so that ‘youths’ can’t fall under some Crypto frauds: “Take cryptocurrencies, such as Bitcoin, for example. It is important that all democratic nations work together on this and ensure it does not end up in the wrong hands, which can spoil our youth."

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As per reports, the Indian Government may only allow preapproved Cryptos for holding/trading purposes and not for any real-life transactions. The Indian Government may introduce a Crypto regulation bill in the forthcoming winter session (29th Nov-23rd Dec’21) of the Parliament and may eventually approve the same with some modifications in existing Income Tax laws in the Budget session (Feb-Apr’22) of the Parliament. Any trading/investment profit out of Cryptos may be heavily taxed. The forthcoming FY23 budget by the Indian FM Sitharaman may be very important for all the Crypto regulations. And most probably, Indian capital market regulator SEBI would be the official regulator of Crypto rather than RBI as it’s not any type of currency or legal/illegal tender (medium of exchange). Crypto will fall under intangible assets and may be treated in line with digital commodities.

Overall, India may take a middle path on Cryptos unlike a ban as in China, considering the innovation/technology with the high potential of Government revenue from heavy capital gain and GST on brokerages; i.e. both direct and indirect taxes.

The Indian Revenue Secretary Bajaj recently said:

“---in terms of income tax, some people are already paying capital gains tax on the income from cryptocurrency, and in respect of Goods and Services Tax (GST) also, the law is very clear that the rate would be applicable like those in the case of other services. We will take a call. I understand that people are already paying taxes on it. Now that it has really grown a lot, we will see whether we can actually bring in some changes in the law or not. But that would be a Budget activity. We are already nearing the Budget; we have to look into it at that point in time. If we come up with a new law, then we will see what is to be done (about tax collected at source). But yes, if you make money you have to pay taxes. We have already got some taxes. Some have treated it as an asset and paid capital gains tax on it.

There would already be such things available in other services also. So, whatever GST rate they are taxed at, will be applicable to them. They have to get themselves registered. The GST law is very clear. If there is an activity, if there is a broker who is helping people and charging a brokerage fee, GST would get charged.”

Bottom line:

The Indian Supreme Court already set aside RBI’s previous circular, prohibiting Crypto transactions. Now Indian Government will regularize well-known/popular Cryptos such as Bitcoin(BTCUSD), Ethereum (ETHUSD), and Litcoin (LTCUSD).

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